Malta: Update on expectations for transfer pricing rules

Indications that transfer pricing rules could be introduced in Maltese tax law

Indications that transfer pricing rules could be introduced in Maltese tax law

Malta has not yet formally adopted the OECD Transfer Pricing Guidelines, but there are indications that transfer pricing rules could be introduced in Maltese tax law in the very near future.

Summary

While details will be revealed when transfer pricing rules are published, the rules are expected to provide for the determination of the arm’s length pricing of a transaction or a series of transactions, any adjustments in relation to those transactions, and the advance pricing agreement (APA) mechanism.

In recent years, Maltese law includes specific reference to transfer pricing rules, in particular under the special tax regime referred to as the patent box. Malta provided for the application of transfer pricing rules in its 2019 revised patent box regime, following recommendations based on the OECD base erosion and profit shifting (BEPS) initiative and EU rules. The revised regime not only incorporated the substantial activity criterion, but also went a step further and provided for the determination of the income or gains from the intellectual property in accordance to the OECD Transfer Pricing Guidelines.

Additionally, Malta has indirectly introduced transfer pricing rules by adhering to international conventions and relevant EU directives and in particular regarding “associated enterprises” under provisions of the OECD Model Tax Convention and the EU directive on dispute resolution mechanism.

KPMG observation

Application of transfer pricing rules in Malta is believed to be only a matter of time. In this respect, businesses need to start evaluating the effect of the formal introduction of transfer pricing rules on their intra-group transactions and manage any associated risks by performing a company’s functional analysis, covering functions performed, risks assumed, and assets used by associated companies in a transaction.

Read an April 2021 report prepared by the KPMG member firm in Malta

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